The state's major utilities and business groups have hit on a deregulation plan that would bar most consumers from using competing electricity suppliers until 2005, and impose a tax to pay off nuclear generators hurt by the switch to a free market.

But the proposal already is meeting opposition in the General Assembly.

Senate President James "Pate" Philip, R-Wood Dale, said Friday he would not support any privately crafted deregulation bill in November, the earliest opportunity for legislative action until 1997, because there has been minimal public debate on the topic.

The Illinois General Assembly joint committee that is responsible for rewriting the laws governing one of the state's largest industries has held only two public hearings on deregulation, both in August.

"Whenever we rush into something like this, we make a mistake," said Mr. Philip.

Chicago-based Commonwealth Edison Co. and Decatur-based Illinois Power Co., the state's biggest utilities, helped negotiate the plan, which is intended to be the blueprint for a bill that would help the high-priced generators weather the transition to competition while cutting business customers' electricity bills quickly enough to satisfy legislators.

Members of the Illinois Industrial Energy Consumers (IIEC), a state See ComEd on Page 57wide interest group made up of the utilities' largest customers, approved the plan by a two-thirds majority last week.

The executive committee of the Illinois Manufacturers' Assn. also approved the deal-the result of months of contentious private negotiations-and the Illinois Retail Merchants Assn.'s executive committee has considered the proposal.

ComEd and Illinois Power denied the existence of a "signed agreement," although sources said both companies have okayed the deal.

A developing framework

Documents distributed last week to IIEC members and interviews with sources involved in the talks, who requested anonymity, offer a clear outline of the legislative agreement the utilities and business groups hope to finalize in coming weeks and present to the legislative joint committee as a negotiated framework for a final deregulation bill.

Among the details:

Residential customers (who locally account for 38% of ComEd's annual sales of $7 billion) would not receive access to competing-and likely cheaper-power vendors for nearly a decade, until 2005.

Instead, electricity rates would be frozen at their current levels and then cut by 1.5% a year beginning at the turn of the century-or a total of 6% after four years.

Business customers would get free market access from 2000 to 2004, with larger electricity users going first.

Beginning in 2002, certain businesses with multiple locations-especially retail and supermarket chains-could combine their bills, allowing for lower rates. (ComEd recently won approval from the Illinois Commerce Commission, which regulates utilities, to allow select customers to begin combining bills now, but the agency is investigating whether such treatment is unfair to other consumers.)

In 1998, ComEd, on an experimental basis, would allow free market access to select customers accounting for about 2% of its total electricity demand. Illinois Power and Peoria-based Central Illinois Light Co. would continue operating similar programs, which they began this year. Other utilities in the state would be required to follow suit.

During the deregulation process, customers abandoning ComEd and other utilities for lower-priced suppliers would be required to pay surcharges to compensate the companies for lost sales.

Utility executives argue that such subsidies are key to the financial stability of publicly traded companies like ComEd and Illinois Power, both of which have multibillion-dollar nuclear power investments that still must be recouped.

After deregulation, the Illinois Commerce Commission would retain oversight, including pricing control, of Illinois' sprawling electricity transmission and local distribution systems. However, the commission would be out of the business of setting prices for electricity generators.

The utility and business group officials, who have been talking since early summer under the cloak of signed confidentiality agreements, believe that any deal they all can agree to will be well-received in the General Assembly.

Moreover, the business groups have felt pressure to try to push a bill through in November's veto session, because a change in control of either the House or Senate-both of which now are controlled by pro-business Republicans-could delay consideration of a deregulation bill.

Still, legislators have been wary of such a proposal.

Informed of the details, state Sen. Steven J. Rauschenberger, R-Elgin, a key member of the joint committee, said: "That dog won't hunt."

In a speech to the IIEC last week (after its members had approved the deal), Mr. Rauschenberger announced a set of principles that he says any deregulation package must meet to satisfy the joint committee.

No. 1 on his list: Residential customers must be given access to competing electricity suppliers at the same time as businesses.

By putting businesses first, the new proposal by the major utilities and business groups differs markedly from a plan that ComEd proposed last December. It would have released residential and business customers at the same time-beginning in 2003-while offering the monopoly's largest users upfront discounts through special programs.

Illinois Power's initial deregulation plan, which helped jump-start the state's electricity debate a year ago, did include a phase-in for business customers, but it was uncertain under that scheme whether residential customers ever would get to choose their supplier.

In agreeing to this latest plan, Illinois Power apparently has recognized that legislators must take care of their residential constituents (who, unlike businesses, vote). And ComEd has agreed to trade the early exit of some business customers for the certainty of recovering its nuclear investments through the consumer surcharge used to make up for lost sales.

The rate freeze and planned price cuts appear to be designed to help sell the deal to legislators, who want to cut business rates and very well may go along with the surcharge provisions to protect ComEd and Illinois Power, both big employers.

Nonetheless, the rate freeze may offer little comfort in a state where prices average 30% to 50% higher than in neighboring states. And the promised price cuts pale next to the 20%-plus discounts promised by competing suppliers.

"If the deal is that residential and small-business customers are locked into high monopoly rates for the next decade, then the deal offers little benefit for the vast majority of consumers," says Howard Learner, executive director of the Environmental Law and Policy Center, a Chicago consumer advocacy group.

Exit fees

Meanwhile, the proposed exit fees to protect ComEd and Illinois Power from lost business are galling to low-price generators that want to take their business, such as Central Illinois Light.

"This proposal would create a legislatively imposed tax, primarily on residential customers, to pay for the past mistakes of high-cost utilities," charged Robert O. Viets, chairman and CEO of Central Illinois Light.